What is a health care subsidy?

Two kinds of health care subsidies will be available soon to help middle- and low-income Americans pay for health insurance: tax credits and cost-sharing assistance. They’ll be available after the new health insurance exchanges open in every state

Enrollment will start on the exchanges on Oct. 1, 2013 for coverage to take effect on Jan. 1, 2014.

Who qualifies for a health care tax credit?

You will be eligible for a health care tax credit if your annual income is between 133 percent and 400 percent of the federal poverty line. That means between $15,281 and $45,960 for a single person, or between $31,321 and $94,200 for a family of four, in most states.

Starting on Jan. 1, 2014, Americans who qualify can immediately receive the tax credit in the form of advance payments to lower their monthly health insurance premiums. The amount of the tax credit depends on your income. When you choose a health plan through one of the exchanges, you will see whether you are eligible for a tax credit, and the amount. The government will send the appropriate credit amount directly to your insurer, which will apply that payment to your monthly premium.

For example, a 40-year-old making $28,783 per year who buys single coverage with a premium of $4,500 would get a yearly tax credit of $2,185, according to the Kaiser Family Foundation, a health policy non-profit.

In most cases, you will not qualify for a tax credit if you are eligible for an employer’s health plan or a government plan, such as Medicaid, Medicare or military coverage. However, you still may be eligible for a tax credit if your employer’s health plan does not pay for at least 60 percent of the cost of medical care, or if your share of the insurance premium exceeds 9.5 percent of your total income.

About 26 million Americans will be eligible for the new premium tax credits, according to Families USA, a nonprofit organization that advocates for health care consumers. The tax credit is designed to make coverage less expensive for middle- and low-income Americans.

“The tax credit subsidies are a game changer. They will make health coverage affordable for huge numbers of uninsured families who would have been priced out of the health coverage and care they need,” says Ron Pollack, executive director of Families USA.

The Affordable Care Act requires that all Americans have health insurance or pay a penalty, starting on Jan. 1, 2014.

Who qualifies for health care cost-sharing assistance?

The second type of health care subsidy gives you assistance with out-of-pocket costs, such as copays and deductibles. When you see a doctor or buy a prescription, you often have to pay a copay, which is a flat fee(usually around $15 or $25). Some plans have a deductible, which is the amount of money you must pay before your insurer starts paying for medical services.

You will qualify for a subsidy to lower your copays and deductibles if your annual income is 250 percent of the federal poverty line or less. That means $28,725 for a single person or $58,875 for a family of four in most states(Alaska and Hawaii have different standards.)

Tax credits and cost-sharing assistance are two types of new health care subsidies designed to reduce the cost of health care and keep patients from avoiding necessary medical treatments.